MotoNovo Finance has said that the motor finance industry must prepare for significant change ahead of the introduction of the FCA’s measures on commission models.
The new regulation will ban all discretionary commission models for finance from 28 January, while all new commission models must avoid anything that looks like a discretionary commission arrangement.
While the FCA does not specify what is acceptable as a commission model, it noted: ‘It could include firms moving to risk-based pricing, provided the broker is not incentivised to set or adjust the rate charged. It could include flat fee models.’
Karl Werner, deputy chief executive of MotoNovo Finance, said: “The dealer finance model needs to be reinvented to meet the FCA’s requirements in full. There is no place for body-swerves or gamification that might replicate any part of the soon-to-be banned dealer discretion. Such a move would only serve to damage the reputation of dealer finance and encourage damaging claims management company activity.
“The changes required are an opportunity to demonstrate to the broad public the industry’s commitment to business cultures centred upon doing the right thing for customers. This principle is also an integral part of the FCA’s SM&CR responsibilities for senior leaders in dealerships and lenders. How we react to the test of embracing, not just the letter, but spirit of the FCA’s Policy Statement stands to have a big part in the future of dealer finance.
“We see the required FCA changes as a significant opportunity to increase customer trust, finance penetration and income for many dealers. Going further, MotoRate and its headline APR rates and customer specific pricing approach are ideally suited to support the move to online sales accelerated by COVID-19. The experience over the last three months is that not only has MotoRate taken the traditional friction out of dealer finance, but it has also encouraged dealers to talk openly and positively about another FCA priority, commission disclosure.
“De-mystifying finance and trust-building have to be positives for the future of dealer finance. I am open to debate on alternative models, but every alternative must put every customers’ best interests at the forefront of the discussion.”